Mortgage Glossary
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Abstract (Of Title)
A summary of the public records relating to the title to a particular
piece of land. An attorney or title insurance company reviews an abstract of
title to determine whether there are any title defects which must be cleared
before a buyer can purchase clear, marketable, and insurable title.
Acceleration Clause
Condition in a mortgage that may require the balance of the loan to
become due immediately, if regular mortgage payments are not made or for
breach of other conditions of the mortgage.
Acceptance
An offeree's consent to enter into a contract and be bound by the terms
of the offer.
Additional principal payment
A payment by a borrower of more than the scheduled principal amount due
in order to reduce the remaining balance on the loan.
Adjustable Mortgage Loan
Any mortgage that does not have a fixed interest rate and a fixed payment
for the term of the loan, or does not amortize to zero at the end of the set
term, when required payments are made on time.
Adjustable Rate Mortgage
A mortgage in which the interest rate is adjusted periodically according
to the movement in a pre-selected index.
Adjusted basis
The original cost of a property plus the value of any capital
expenditures for improvements to the property minus any depreciation taken
Adjustment date
The date on which the interest rate changes for an adjustable-rate
mortgage (ARM).
Adjustment Interval
For an adjustable rate mortgage, the time between changes in the interest
rate charged. The most common adjustment intervals are one, three or five
years.
Adjustment period
The period that elapses between the adjustment dates for an
adjustable-rate mortgage (ARM).
Administrator
A person appointed by a probate court to administer the estate of a
person who died intestate.
Agreement of Sale
Known by various names, such as contract of purchase, purchase agreement,
or sales agreement according to location or jurisdiction. A contract in
which a seller agrees to sell and a buyer agrees to buy, under certain
specific terms and conditions spelled out in writing and signed by both
parties.
Amenity
A feature of real property that enhances its attractiveness and increases
the occupant's or user's satisfaction although the feature is not essential
to the property's use. Natural amenities include a pleasant or desirable
location near water, scenic views of the surrounding area, etc. Human-made
amenities include swimming pools, tennis courts, community buildings, and
other recreational facilities.
Amortization
A payment plan, which enables the borrower to reduce his debt gradually
through monthly payments of principal.
Amortization schedule
A timetable for payment of a mortgage loan. An amortization schedule
shows the amount of each payment applied to interest and principal and shows
the remaining balance after each payment is made.
Amortization term
The amount of time required to amortize the mortgage loan. The
amortization term is expressed as a number of months.
Amortize
Reduce a debt by regular payments of both principal and interest.
Amortization Schedule
A timetable for payment of a mortgage showing the amount of each payment
applied to interest and principal and the remaining balance.
Annual Percentage Rate (APR)
The total yearly cost of a mortgage stated as a percentage of the loan
amount: includes the base interest rate, primary mortgage insurance, and
loan origination fee (points)
Annuity
An amount paid yearly or at other regular intervals, often on a
guaranteed dollar basis.
Application
A form used to apply for a mortgage loan and to record pertinent
information concerning a prospective mortgagor and the proposed security.
Application Fee
The fee charged by the lender to the borrower for applying for a loan.
Appraised value
An opinion of a property's fair market value, based on an appraiser's
knowledge, experience, and analysis of the property.
Appraiser
A person qualified by education, training, and experience to estimate the
value of real property and personal property.
Appraisal
A professional opinion of the market value of a property.
Appreciation
An increase in the value of a house due to changes in market conditions
or other causes.
Assessed Value
The valuation placed upon property by a public tax assessor for purposes
of taxation.
Assessment
The process of placing a value on property for the strict purpose of
taxation. May also refer to a levy against property for a special purpose,
such as a sewer assessment.
Assessor
A public official who establishes the value of a property for taxation
purposes.
Asset
Anything of monetary value that is owned by a person. Assets include real
property, personal property, and enforceable claims against others
(including bank accounts, stocks, mutual funds, and so on).
Assignment
The transfer of a mortgage from one person to another.
Assumable Loan
These loans may be passed on from a seller of a home to the buyer. The
buyer "assumes" all outstanding payments.
Assumption clause
A provision in an assumable mortgage that allows a buyer to assume
responsibility for the mortgage from the seller. The loan does not need to
be paid in full by the original borrower upon sale or transfer of the
property.
Assumption fee
The fee paid to a lender (usually by the purchaser of real property)
resulting from the assumption of an existing mortgage.
Assumption of Mortgage
An obligation undertaken by the purchaser of property to be personally
liable for payment of an existing mortgage. In an assumption, the purchaser
is substituted for the original mortgagor in the mortgage instrument and the
original mortgagor is to be released from further liability in the
assumption, the mortgagee's consent is usually required.
Attorney-in-fact
One who holds a power of attorney from another to execute documents on
behalf of the grantor of the power. The original mortgagor should always
obtain a written release from further liability if he desires to be fully
released under the assumption. Failure to obtain such a release renders the
original mortgagor liable if the person assuming the mortgage fails to make
the monthly payments. An "Assumption of Mortgage" is often confused with
"purchasing subject to a mortgage." When one purchases subject to a
mortgage, the purchaser agrees to make the monthly mortgage payments on an
existing mortgage, but the original mortgagor remains personally liable if
the purchaser fails to make the monthly payments. Since the original
mortgagor remains liable in the event of default, the mortgagee's consent is
not required to a sale subject to a mortgage. Both "Assumption of Mortgage"
and "Purchasing Subject to a Mortgage" are used to finance the sale of
property. They may also be used when a mortgagor is in financial difficulty
and desires to sell the property to avoid foreclosure.
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Balance sheet
A financial statement that shows assets, liabilities, and net worth as of
a specific date.
Bankrupt
A person, firm, or corporation that, through a court proceeding, is
relieved from the payment of all debts after the surrender of all assets to
a court-appointed trustee.
Bankruptcy
A proceeding in a federal court in which a debtor who owes more than his
or her assets can relieve the debts by transferring his or her assets to a
trustee.
Before-tax income
Income before taxes are deducted.
Beneficiary
The person designated to receive the income from a trust, estate, or a
deed of trust.
Bill of sale
A written document that transfers title to personal property.
Binder or "Offer to Purchase"
A preliminary agreement, secured by the payment of earnest money, between
a buyer and seller as an offer to purchase real estate. A binder secures the
right to purchase real estate upon agreed terms for a limited period of
time. If the buyer changes his mind or is unable to purchase, the earnest
money is forfeited unless the binder expressly provides that it is to be
refunded. Broker (See Real Estate Broker)
Blanket insurance policy
A single policy that covers more than one piece of property (or more than
one person).
Bond
An interest-bearing certificate of debt with a maturity date. An
obligation of a government or business corporation. A real estate bond is a
written obligation usually secured by a mortgage or a deed of trust.
Borrower
One who receives funds with the expressed or implied intention of
repaying the loan in full.
Bridge loan
A form of second trust that is collateralized by the borrower's present
home (which is usually for sale) in a manner that allows the proceeds to be
used for closing on a new house before the present home is sold.
Broker
An individual in the business of assisting in arranging funding or
negotiating contracts for a client but who does not loan the money himself.
Brokers usually charge a fee or receive a commission for their services.
Building code
Local regulations that control design, construction, and materials used
in construction. Building codes are based on safety and health standards.
Building Line or Setback
Distances from the ends and/or sides of the lot beyond which construction
may not extend. The building line may be established by a filed plat of
subdivision, by restrictive covenants in deeds or leases, by building codes,
or by zoning ordinances.
Buy down
Money advanced by an individual (seller, builder, etc.) to reduce monthly
payments for a home mortgage either during the entire term or for an initial
period of years.
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Call option
A provision in the mortgage that gives the mortgagee the right to call
the mortgage due and payable at the end of a specified period for whatever
reason.
Capital expenditure
The cost of an improvement made to extend the useful life of a property
or to add to its value.
Capital improvement
Any structure or component erected as a permanent improvement to real
property that adds to its value and useful life.
Cap
A provision of an ARM limiting how much the interest rate or mortgage
payments may increase.
Cash Out
A loan transaction in which the borrower receives funds at the time of
closing.
Cash-out refinance
A refinance transaction in which the amount of money received from the
new loan exceeds the total of the money needed to repay the existing first
mortgage, closing costs, points, and the amount required to satisfy any
outstanding subordinate mortgage liens.
Certificate of deposit
A document written by a bank or other financial institution that is
evidence of a deposit, with the issuer's promise to return the deposit plus
earnings at a specified interest rate within a specified time period.
Certificate of Eligibility A document issued by the federal government
certifying a veteran's eligibility for a Department of Veterans Affairs (VA)
mortgage. Certificate of Reasonable Value (CRV) A document issued by the
Department of Veterans Affairs (VA) that establishes the maximum value and
loan amount for a VA mortgage.
Certificate of Title
A certificate issued by a title company or a written opinion rendered by
an attorney that the seller has good marketable and insurable title to the
property, which he is offering for sale. A certificate of title offers no
protection against any hidden defects in the title, which an examination of
the records could not reveal. The issuer of a certificate of title is liable
only for damages due to negligence. The protection offered a homeowner under
a certificate of title is not as great as that offered in a title insurance
policy.
Chain of title
The history of all of the documents that transfer title to a parcel of
real property, starting with the earliest existing document and ending with
the most recent.
Change frequency
The frequency (in months) of payment and/or interest rate changes in an
adjustable-rate mortgage (ARM).
Chattel
Another name for personal property.
Claim
An amount requested of an insurer, by a policyholder or a claimant, for
an insured loss.
Clear title
A title that is free of liens or legal questions as to ownership of the
property
Closing
The occasion where a sale is finalized; the buyer signs the mortgage, and
closing costs are paid. Also called "settlement."
Closing Costs
Expenses (over and above the price of the property) incurred by buyers
and sellers in transferring ownership of a property. Also called "settlement
costs."
Closing cost item
A fee or amount that a homebuyer must pay at closing for a single
service, tax, or product.
Closing Day
The day on which the formalities of a real estate sale are concluded. The
certificate of title, abstract, and deed are generally prepared for the
closing by an attorney and this cost charged to the buyer. The buyer signs
the mortgage, and closing costs are paid. The final closing merely confirms
the original agreement reached in the agreement of sale.
Cloud (On Title)
An outstanding claim or encumbrance, which adversely affects the
marketability of title.
Co-Borrower
An additional borrower on a loan. A co-borrower's obligation on a loan
are the same as all other borrowers.
Coinsurance
A sharing of insurance risk between the insurer and the insured.
Coinsurance depends on the relationship between the amount of the policy and
a specified percentage of the actual value of the property insured at the
time of the loss.
Coinsurance clause
A provision in a hazard insurance policy that states the amount of
coverage that must be maintained -- as a percentage of the total value of
the property -- for the insured to collect the full amount of a loss.
Collateral
An asset (such as a car or a home) that guarantees the repayment of a
loan. The borrower risks losing the asset if the loan is not repaid
according to the terms of the loan contract.
Collection
The efforts used to bring a delinquent mortgage current and to file the
necessary notices to proceed with foreclosure when necessary.
Co-maker
A person who signs a promissory note along with the borrower. A
co-maker's signature guarantees that the loan will be repaid, because the
borrower and the co-maker are equally responsible for the repayment.
Commission
Money paid to a real estate agent or broker by the seller as compensation
for finding a buyer and completing the sale.
Commitment Letter
A formal offer by a lender stating the terms under which it agrees to
loan money to a homebuyer.
Common area assessments
Levies against individual unit owners in a condominium or planned unit
development (PUD) project for additional capital to defray homeowners'
association costs and expenses and to repair, replace, maintain, improve, or
operate the common areas of the project.
Common areas
Those portions of a building, land, and amenities owned (or managed) by a
planned unit development (PUD) or condominium project's homeowners'
association (or a cooperative project's cooperative corporation) that are
used by all of the unit owners, who share in the common expenses of their
operation and maintenance. Common areas include swimming pools, tennis
courts, and other recreational facilities, as well as common corridors of
buildings, parking areas, means of ingress and egress, etc.
Common law
An unwritten body of law based on general custom in England and used to
an extent in the United States.
Community property
In some western and southwestern states, a form of ownership under which
property acquired during a marriage is presumed to be owned jointly unless
acquired as separate property of either spouse.
Comparables
A abbreviation for comparable properties used for comparative purposes in
the appraisal process; facilities of reasonably the same size and location
with similar amenities; properties which have been recently sold, which have
characteristics similar to property under consideration, thereby indicating
the approximate fair market value of the subject property.
Compound interest
Interest paid on the original principal balance and on the accrued and
unpaid interest.
Condemnation
The taking of private property for public use by a government unit,
against the will of the owner, but with payment of just compensation under
the government's power of eminent domain. Condemnation may also be a
determination by a governmental agency that a particular building is unsafe
or unfit for use.
Condominium
Individual ownership of a dwelling unit and an individual interest in the
common areas and facilities, which serve the multi-unit project.
Condominium conversion
Changing the ownership of an existing building (usually a rental project)
to the condominium form of ownership.
Condominium hotel
A condominium project that has rental or registration desks, short-term
occupancy, food and telephone services, and daily cleaning services and that
is operated as a commercial hotel even though the units are individually
owned.
Construction Loan
A short-term loan for funding the cost of construction. The lender
advances funds to the builder as the work progresses.
Consumer reporting agency (or bureau)
An organization that prepares reports that are used by lenders to
determine a potential borrower's credit history. The agency obtains data for
these reports from a credit repository as well as from other sources.
Contingency
A condition that must be met before a contract is legally binding.
Contract
An oral or written agreement to do or not to do a certain thing.
Contractor
In the construction industry, a contractor is one who contracts to erect
buildings or portions of them. There are also contractors for each phase of
construction: heating, electrical, plumbing, air conditioning, road
building, bridge and dam erection, and others.
Conventional Mortgage
Any mortgage that is not insured or guaranteed by the federal government.
Convertibility clause
A provision in some adjustable-rate mortgages (ARMs) that allows the
borrower to change the ARM to a fixed-rate mortgage at specified time.
Convertible Arm
An adjustable-rate mortgage that can be converted to a fixed-rate
mortgage under specified conditions.
Coverage
The amount of protection, usually expressed in a percentage of the total
claim amount, an insured receives under a certificate.
Cooperative (co-op)
A type of multiple ownership in which the residents of a multiunit
housing complex own shares in the cooperative corporation that owns the
property, giving each resident the right to occupy a specific apartment or
unit.
Cooperative Corporation
A business trust entity that holds title to a cooperative project and
grants occupancy rights to particular apartments or units to shareholders
through proprietary leases or similar arrangements.
Cooperative Housing
An apartment building or a group of dwellings owned by a corporation, the
stockholders of which are the residents of the dwellings. It is operated for
their benefit by their elected board of directors. In a cooperative, the
corporation or association owns title to the real estate. A resident
purchases stock in the corporation, which entitles him to occupy a unit in
the building or property owned by the cooperative. While the resident does
not own his unit, he has an absolute right to occupy his unit for as long as
he owns the stock.
Cooperative mortgages
Mortgages related to a cooperative project.
Cooperative project
A residential or mixed-use building wherein a corporation or trust holds
title to the property and sells shares of stock representing the value of a
single apartment unit to individuals who, in turn, receive a proprietary
lease as evidence of title.
Corporate relocation
Arrangements under which an employer moves an employee to another area as
part of the employer's normal course of business or under which it transfers
a substantial part or all of its operations and employees to another area
because it is relocating its headquarters or expanding its office capacity.
Cost of funds index (COFI)
An index that is used to determine interest rate changes for certain
adjustable-rate mortgage (ARM) plans. It represents the weighted-average
cost of savings, borrowings, and advances of the 11th District members of
the Federal Home Loan Bank of San Francisco.
Covenant
A clause in a mortgage that obligates or restricts the borrower and that,
if violated, can result in foreclosure.
Commitment
A written letter of agreement detailing the terms and conditions by which
the lender will lend and the borrower will borrow funds to finance a home.
Credit history
A record of an individual's open and fully repaid debts. A credit history
helps a lender to determine whether a potential borrower has a history of
repaying debts in a timely manner.
Credit life insurance
A type of insurance often bought by mortgagors because it will pay off
the mortgage debt if the mortgagor dies while the policy is in force.
Creditor
A person to whom money is owed.
Credit Report
A report of an individual's credit history prepared by a credit bureau
and used by a lender in determining a loan applicant's creditworthiness.
Credit repository
An organization that gathers, records, updates, and stores financial and
public records information about the payment records of individuals who are
being considered for credit.
Cure
A loan that is removed from a delinquency status with no loss to the
insurer.
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Deed-in-lieu
A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid
foreclosure. Also called a "voluntary conveyance."
Deed of Trust
Like a mortgage, a security instrument whereby real property is given as
security for a debt. However, in a deed of trust there are three parties to
the instrument: the borrower, the trustee, and the lender, (or beneficiary).
In such a transaction, the borrower transfers the legal title for the
property to the trustee who holds the property in trust as security for the
payment of the debt to the lender or beneficiary. If the borrower pays the
debt as agreed, the deed of trust becomes void. If, however, he defaults in
the payment of the debt, the trustee may sell the property at a public sale,
under the terms of the deed of trust. In most jurisdictions where the deed
of trust is in force, the borrower is subject to having his property sold
without benefit of legal proceedings. A few States have begun in recent
years to treat the deed of trust like a mortgage.
Default
Failure to make mortgage payments on a timely basis or to comply with
other conditions of a mortgage.
Deficiency Judgment
A court order to pay the balance owed on a loan if the proceeds from the
sale of the security are insufficient to pay off the loan. Deficiency
judgments are not allowed in all states.
Delinquency
A loan in which a payment is overdue but not yet in default.
Deposit
A sum of money given to bind the sale of real estate, or a sum of money
given to ensure payment or an advance of funds in the processing of a loan.
Depreciation
A decline in the value of property; the opposite of "appreciation."
Discount Points
See Points.
Documentary Stamps
A State tax, in the forms of stamps, required on deeds and mortgages when
real estate title passes from one owner to another. The amount of stamps
required varies with each State.
Dower
The rights of a widow in the property of her husband at his death.
Down Payment
The part of the purchase price, which the buyer pays in cash and does not
finance with a mortgage
Due-on-sale provision
A provision in a mortgage that allows the lender to demand repayment in
full if the borrower sells the property that serves as security for the
mortgage.
Due-on-transfer provision
This terminology is usually used for second mortgages.
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Earnest Money
The deposit money given to the seller or his agent by the potential buyer
upon the signing of the agreement of sale to show that he is serious about
buying the house. If the sale goes through, the earnest money is applied
against the down payment. If the sale does not go through, the earnest money
will be forfeited or lost unless the binder or offer to purchase expressly
provides that it is refundable.
Easement Rights
A right-of-way granted to a person or company authorizing access to or
over the owner's land. An electric company obtaining a right-of-way across
private property is a common example.
Effective age
An appraiser's estimate of the physical condition of a building. The
actual age of a building may be shorter or longer than its effective age.
Effective gross income
Normal annual income including overtime that is regular or guaranteed.
The income may be from more than one source. Salary is generally the
principal source, but other income may qualify if it is significant and
stable.
Eminent domain
The right of a government to take private property for public use upon
payment of its fair market value. Eminent domain is the basis for
condemnation proceedings.
Employer-assisted housing
A special Fannie Mae housing initiative that offers several different
ways for employers to work with local lenders to develop plans to assist
their employees in purchasing homes.
Encroachment
An obstruction, building, or part of a building that intrudes beyond a
legal boundary onto neighboring private or public land, or a building
extending beyond the building line.
Encumbrance
A legal right or interest in land that affects a good or clear title, and
diminishes the land's value. It can take numerous forms, such as zoning
ordinances, easement rights, claims, mortgages, liens, charges, a pending
legal action, unpaid taxes, or restrictive covenants. An encumbrance does
not legally prevent transfer of the property to another. A title search is
all that is usually done to reveal the existence of such encumbrances, and
it is up to the buyer to determine whether he wants to purchase with the
encumbrance, or what can be done to remove it.
Endorser
A person who signs ownership interest over to another party. Contrast
with co-maker.
Equal Credit Opportunity Act (ECOA)
A federal law that requires lenders and other creditors to make credit
equally available without discrimination based on race, color, religion,
national origin, age, sex, marital status, or receipt of income from public
assistance programs.
Equity
The difference between the market value of a property and the homeowner's
outstanding mortgage balance.
Equity Loan
A loan based on the borrower's equity in his or her home. Prior to
closing; also, an account held by the lender into which a homeowner pays
money for taxes and insurance.
Escrow account
The account in which a mortgage servicer holds the borrower's escrow
payments prior to paying property expenses.Escrow analysis.The periodic examination
of escrow accounts to determine if current monthly deposits will provide sufficient
funds to pay taxes, insurance, and other bills when due.
Escrow collections
Funds collected by the servicer and set aside in an escrow account to pay
the borrower's property taxes, mortgage insurance, and hazard insurance.
Escrow disbursements.The use of escrow funds
to pay real estate taxes, hazard insurance, mortgage insurance, and other
property expenses as they become due.
Escrow payment
The portion of a mortgagor's monthly payment that is held by the servicer
to pay for taxes, hazard insurance, mortgage insurance, lease payments, and
other items as they become due. Estate. The ownership interest
of an individual in real property. The sum total of all the real property
and personal property owned by an individual at time of death.
Eviction
The lawful expulsion of an occupant from real property.
Examination of title
The report on the title of a property from the public records or an
abstract of the title.
Exclusive listing
A written contract that gives a licensed real estate agent the exclusive
right to sell a property for a specified time, but reserving the owner's
right to sell the property alone without the payment of a commission.
Executor
A person named in a will to administer an estate
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Fair Credit Reporting Act
A consumer protection law that regulates the disclosure of consumer credit
reports by consumer/credit reporting agencies and establishes procedures for
correcting mistakes on one's credit record.
Fair-market-value
The highest price that a buyer, willing but not compelled to buy would pay,
and the lowest a seller, willing but not compelled to sell, would accept.
FDIC
(Federal Deposit Insurance Corporation). Provides insurance of accounts for
institutions whose deposits were formerly covered by the Federal Savings & Loan
Insurance Corporation. (FSLIC).
Fee simple
The greatest possible interest a person can have in real estate.
Fee simple estate
An unconditional, unlimited estate of inheritance that represents the greatest
estate and most extensive interest in land that can be enjoyed. It is of perpetual
duration. When the real estate is in a condominium project, the unit owner
is the exclusive owner only of the air space within his or her portion of
the building (the unit) and is an owner in common with respect to the land
and other common portions of the property.
FHA
(Federal Housing Administration). A division of the Department of Housing
and Urban Development. The FHA's main activity is the insuring of residential
mortgage loans made by private lenders. It sets standards for construction
and underwriting. FHA neither lends money, nor plans, nor constructs housing.
FHA Loan
Government loans are loans that are guaranteed or purchased by government
organizations. Two of the most popular Government Loans are the Federal Housing
Administration (FHA) and the Department of Veterans Affairs (VA).
FHFB
(Federal Housing Finance Board). It oversees the credit functions of the
twelve regional Federal Home Loan Banks.
FHLBB
(Federal Home Loan Bank Board). A regulatory and supervisory agency for federally
charted savings institutions, which oversees the operations of the FSLIC and
FHLMC. This agency was abolished by the Financial Institutions Reform, Recovery
and Enforcement Act of 1989. (See FIRREA.)
FHLMC
(Federal Home Loan Mortgage Corporation, Freddie Mac). A private corporation
authorized by Congress, which became an independent, stockholder-owned government
corporation with the passage of FIRREA. FHLMC promotes the flow of funds into
the housing markets by purchasing conventional mortgages in the secondary
market and selling securities backed by those mortgages in the capital market.
Finance Charge
The total dollar amount your loan will cost you. It includes all interest
payments for the life of the loan, any interest paid at closing, your origination
fee and any other charges paid to the lender and/or broker. Appraisal, credit
report and title search fees are not included in the finance charge calculation.
Finder's fee
A fee or commission paid to a mortgage broker for finding a mortgage loan
for a prospective borrower.
FIRE
(Financial Institutions Reform, Recovery and Enforcement Act of 1989). An
act signed into law in August 1989, by President Bush that restructured the
thrift regulatory an insurance system.
Firm commitment
A lender's agreement to make a loan to a specific borrower on a specific
property.
First Mortgage
The mortgage that has first claim in the event of default.
Fixed installment
The monthly payment due on a mortgage loan.
Fixed-Rate Mortgage
(FRM) A mortgage in which the interest rate does not change during the entire
term of the loan.
FNMA
(Federal National Mortgage Association, Fannie Mae). A government-sponsored
corporation, owned solely by private investors, created to provide support
to the secondary market for FHA and VA mortgages and conventional mortgages.
Fixture
Personal property that becomes real property when attached in a permanent
manner to real estate.
Flood insurance
Insurance that compensates for physical property damage resulting from flooding.
It is required for properties located in federally designated flood areas.
Forfeiture
The loss of money, property, rights, or privileges due to a breach of legal
obligation.
Foreclosure
The process by which a mortgage property may be sold when a mortgage is in
default.
Fully amortized ARM
An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient
to amortize the remaining balance, at the interest accrual rate, over the
amortization term.
Full Recasting
Setting the P&I payments to the level that will fully amortize the loan's
outstanding balance over the remaining term using the fully indexed accrual
rate at the recasting point.
Fully Indexed Accrual Rate
The interest (accrual) rate resulting from the index at closing (or at another
point in the loan) plus the lender's full spread, rounded as prescribed in
the loan documents (often to the nearest 1/8th of 1%).
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General Warranty Deed
A deed which conveys not only all the grantor's interests in and title to
the property to the grantee, but also warrants that if the title is defective
or has a "cloud" on it (such as mortgage claims, tax liens, title
claims, judgments, or mechanic's liens against it) the grantee may hold the
grantor liable.
Good Faith Estimate
An estimate of charges, which a borrower is likely to incur in connection
with a loan closing.
Graduated Payment Mortgage
(GPM) A mortgage where the payments are scheduled to increase, usually annually,
for a set number of years, and then level off. GPM can be used with either
a fixed or adjustable interest rate, and usually has a 30-year term.
Grantee
That party in the deed who is the buyer or recipient.
Grantor
That party in the deed who is the seller or giver.
Gross Monthly Income
The total amount the borrower earns per month, not counting any taxes or
expenses. Often used in calculations to determine whether a borrower qualifies
for a particular loan.
Growing Equity Mortgage
(GEM) A fixed rate, graduated payment mortgage with small initial payments
that increase each year so that the loan pays off in a shortened term, usually
15 years.
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Hazard Insurance
Insurance to protect the homeowner and the lender against physical damage
to a property from fire, wind, vandalism, or other hazards.
Homeowner's Insurance
An insurance policy that combines liability coverage and hazard insurance.
Homeowner's Warranty
A type of insurance that covers repairs to specified parts of a house for
a specific period of time.
Housing Ratio
The ratio of the monthly housing payment to total gross monthly income. Also
called Payment-to-Income Ratio or Front-End Ratio.
HUD
(Department of Housing and Urban Development). A cabinet department responsible
for the implementation and administration of government housing and urban
development programs.
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Income property
Real estate developed or improved to produce income.
Index
(Also called "Rate Index"). A regularly published rate, independent
of the lending institution, that measures the prevailing cost of funds, and
is used periodically with the margin to set AML accrual rates.
Initial Borrower Interest Rate
The rate on which the borrower's first payment is calculated.
Initial Borrower Payment Rate
The annual interest rate used to calculate the borrower's initial cash payment.
Inflation
An increase in the amount of money or credit available in relation to the
amount of goods or services available, which causes an increase in the general
price level of goods and services. Over time, inflation reduces the purchasing
power of a dollar, making it worth less.
Initial interest rate
The original interest rate of the mortgage at the time of closing.
Installment
The regular periodic payment that a borrower agrees to make to a lender.
Installment loan
Borrowed money that is repaid in equal payments, known as installments. A
furniture loan is often paid for as an installment loan.
Insurable title
A property title that a title insurance company agrees to insure against
defects and disputes.
Insurance
A contract that provides compensation for specific losses in exchange for
a periodic payment. An individual contract is known as an insurance policy,
and the periodic payment is known as an insurance premium.
Insurance binder
A document that states that insurance is temporarily in effect. Because the
coverage will expire by a specified date, a permanent policy must be obtained
before the expiration date.
Insured mortgage
A mortgage that is protected by the Federal Housing Administration (FHA)
or by private mortgage insurance (MI). If the borrower defaults on the loan,
the insurer must pay the lender the lesser of the loss incurred or the insured
amount
Interest
The fee charged for borrowing money.
Interest accrual rate
The percentage rate at which interest accrues on the mortgage. In most cases,
it is also the rate used to calculate the monthly payments, although it is
not used for an adjustable-rate mortgage (ARM) with payment change limitations.
Interest Rate
The percentage of an amount of money, which is paid for its use for a specified
time.
Interest Rate Cap
A provision of an ARM limiting how much interest rates may increase per adjustment
period.
Interest rate ceiling
For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified
in the mortgage note.
Interest rate floor
For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified
in the mortgage note.
Investment property
A property that is not occupied by the owner.
IRA (Individual Retirement Account)
A retirement account that allows individuals to make tax-deferred contributions
to a personal retirement fund. Individuals can place IRA funds in bank accounts
or in other forms of investment such as stocks, bonds, or mutual funds.
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Joint tenancy
A form of co-ownership that gives each tenant equal interest and equal rights
in the property, including the right of survivorship.
Judgment
A decision made by a court of law. In judgments that require the repayment
of a debt, the court may place a lien against the debtor's real property as
collateral for the judgment's creditor.
Judgment lien
A lien on the property of a debtor resulting from the decree of a court.
Judicial foreclosure
A type of foreclosure proceeding used in some states that is handled as a
civil lawsuit and conducted entirely under the auspices of a court.
Jumbo Loans
Jumbo, or non-conforming, is a term used to describe a loan that does not
conform to Fannie Mae or Freddie Mac guidelines. The typical Jumbo loan exceeds
the maximum loan amounts described above.
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Late charge
The penalty a borrower must pay when a payment is made a stated number of
days (usually 15) after the due date.
Lease
A written agreement between the property owner and a tenant that stipulates
the conditions under which the tenant may possess the real estate for a specified
period of time and rent.
Leasehold estate
A way of holding title to a property wherein the mortgagor does not actually
own the property but rather has a recorded long-term lease on it.
Legal description
A property description, recognized by law that is sufficient to locate and
identify the property without oral testimony.
Lender
An institution that makes loans to borrowers on real estate.
Liabilities
A person's financial obligations. Liabilities include long-term and short-term
debt, as well as any other amounts that are owed to others.
Liability insurance
Insurance coverage that offers protection against claims alleging that a
property owner's negligence or inappropriate action resulted in bodily injury
or property damage to another party.
Lien
A legal claim against a property that must be paid when the property is sold.
Lifetime Cap
A provision of an ARM that limits the total increase in interest rates over
the life of the loan.
Lifetime payment cap
For an adjustable-rate mortgage (ARM), a limit on the amount that payments
can increase or decrease over the life of the mortgage.
Line of credit
An agreement by a commercial bank or other financial institution to extend
credit up to a certain amount for a certain time to a specified borrower.
Liquid asset
A cash asset or an asset that is easily converted into cash.
Loan
A sum of borrowed money (principal) that is generally repaid with interest.
Loan Commitment
Formal offer by a lender stating the terms under which it agrees to loan
money to a homebuyer.
Loan origination
The process by which a mortgage lender brings into existence a mortgage secured
by real property.
Loan Servicing
The collection of mortgage payments from borrowers and related responsibilities
of a loan servicer.
Loan -To-Value
(LTV). The loan-to-value ratio (LTV) is the original loan amount divided
by the lower of the sales price or the appraised value.
Lock
The period, expressed in days, during which a lender will guarantee a rate.
Lock-in period
The time period during which the lender has guaranteed an interest rate to
a borrower.
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